Foolish Forecast: Overachieving La-Z-Boy

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Twice in a row now, La-Z-Boy (NYSE: LZB) has put the lie to its own name, going above and beyond the call of analysts to exceed their quarterly earnings estimates. As the last installment of earnings news of the fiscal year waits just the other side of this weekend, investors dare to hope: Can La-Z-Boy go three for three?

What analysts say:

•  Buy, sell, or waffle? The five analysts still following this stock are doubtful, giving La-Z-Boy one buy rating, three holds, and a sell.

•  Revenues. On average, they expect to see quarterly sales slide 20% to $408.8 million.

•  Earnings. Profits are predicted to plummet 68% to $0.07 per share.

What management says:
There are two items of interest on La-Z-Boy this quarter. First, in C-level news, corporate controller and Chief Accounting Officer Mark A. Copping "left the company early last month." Several weeks later, management announced that CFO Mike Riccio will retain his CFO cap, and pick up and don his old Chief Accounting Officer hat as well.

Even bigger news came on the restructuring front in March. You can read all about it here, but the upshot is that La-Z-Boy is shuttering two furniture factories and a lumber mill, consolidating three North Carolinian upholstery operations into one, and slashing 500 jobs from its payroll. Total cost: $0.11 to $0.12 per share, pre-tax, most of which will count against Tuesday's Q4 profits. Miserable shareholders of Bassett Furniture (Nasdaq: BSET), Furniture Brands (NYSE: FBN), Hooker Furniture (Nasdaq: HOFT), and Stanley Furniture (Nasdaq: STLY) are reportedly enjoying the company.

What management does:
These restructuring costs won't do much to help La-Z-Boy's operating or net margins recover from their continuing sabbatical in the land of low single digits. But if La-Z-Boy can work some efficiencies of production out of its new slimmer styling, then perhaps it will turn out for the best in a few quarters' time.

Margins	10/05	1/06	4/06	7/06	10/06	1/07
Gross	23.6%	24%	23.9%	24%	24.6%	25.1%
Operating	3.2%	3.1%	2.5%	2.4%	2.8%	2.6%
Net	1.5%	1.5%	(0.2%)	(0.2%)	0.2%	(0.7%)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
By all rights, La-Z-Boy's profits should be reviving by now. Over the last two quarters, it has watched sales fall by 10% -- but cost of goods sold has fallen even faster, down 12% year over year in the last six months. Were La-Z-Boy able to drop the full weight of that gross margin improvement all the way to its miniscule bottom line, it would suffice to double the firm's net profitability!

But before it can accomplish that, management seems to feel it's necessary to slim down operationally and make its business more efficient. Hard to argue with the long-term logic of the decision, but I can certainly understand if La-Z-Boy investors are starting to get impatient with waiting to see the benefits of the improvements in gross margin.

Did you miss our interview with La-Z-Boy CEO Kurt Darrow last month? Kick back and enjoy: Sitting Down With La-Z-Boy.

La-Z-Boy is a Motley Fool Income Investor recommendation. Hooker Furniture and Stanley Furniture are both Motley Fool Hidden Gems selections. Both newsletters are beating the market and both newsletters are available for a free 30-day trial.

Fool contributor Rich Smith does not own shares of any company named above.